Archives: February 2008
Sun Feb 17, 2008
Arbitration Awards
(2/16/2008)
Strike 1: Two sophisticated business entities contract with each other and include an arbitration clause containing a choice of law provision mandating the arbitrator to "strictly apply [state] law." The arbitrator conducts the arbitration pursuant to FAA rules, identifies the prevailing party, and writes an award expressing his view of the case without any reference to state statutory or decisional law.
The non prevailing party appeals, citing none of the grounds for vacatur listed in 9 U.S.C.10. Not an adhesive contract; no argument on substantive or procedural arbitrability; no duress; no fraud; no nondisclosure; no manifest disregard; no corruption in the process or the arbitrators.
In writing its decision on appeal, the 7th Circuit panel in muses about the absence of appealable grounds; wonders how a court would resolve a case if the arbitrator wrote nothing at all; agrees we all know a court cannot set aside the award of an arbitrator (potentially confirmed in a judgment) who mistakes the law or facts, but presumably "there must be some boundaries ...[limiting] the extent to which the arbitrator could indulge his fancy..."
The court continues: "The arbitrator seems not to have interpreted [the law] at all but merely ignored it which was inconsistent with the directive that he strictly apply [state] law..." In conclusion the court writes...the arbitrator must render an award with an "interpretative path'' between the claims alleged and the award.
The court sends the case back to the arbitrator (if available) with instructions to hold an evidentiary hearing on the facts as applicable to state law.
In California terms, the California Supreme Court has said the award must reflect a "nexus" between the facts and the award; a "rational relationship;" Advanced Micro Devices, Inc. v. Intel Corp., Cal.4th 362 (1994).
Comment: This decision is arguably an isolated case but the 7th Circuit is possibly sending a subtle message recommending that arbitrators specifically connect submitted claims to the award-despite the court's concession that arbitrators need not write an award and mistakes of law or fact are not grounds for reversal on appeal.
Strike 2: In addition, a different 7th Circuit panel writes that "[a]n arbitral order that does not adhere to the legal principles specified by the arbitration agreement [choice of law provision] is one of two scenarios that warrants vacatur ... pursuant to the FAA; [9 U.S.C. 10 (a) (4)]. Ignoring a choice of law provision in an arbitration agreement exceeds the arbitrator's power since the arbitrator's power is borne from that arbitration agreement."
The court denied the motion to vacate on other grounds. Is this case dicta or precedent?
See, Text, ArbitrationAdr.com, Ch. V, Vacating Awards
Wed Feb 06, 2008
Summary Judgments in Arbitration
The FAA does not provide extensive guidance to arbitrators in resolving procedural issues common in litigation. No statute provides for motion practice, presumably on the ground arbitration replaces litigation and eliminates pre trial discovery other than subpoenaing a witness to bring documents to a hearing; 9 U.S.C. 7. In practice, parties agree to discovery and motion cut-off among themselves or abide by relevant state statutes.
The Third Circuit has confirmed the right of an arbitrator to issue summary judgment on issues of undisputed fact absent a provision in the arbitration agreement prohibiting this practice. Invoking AAA Rules, the court said the arbitrator has “wide latitude” in fashioning an appropriate remedy. The arbitrator retains “flexibility and discretion” in decision making and the inherent power to “grant any legal and equitable relief.”
The court, in responding to a motion to vacate an award on grounds the arbitrator engaged in misconduct (9 U.S.C.10 (a) (3) by granting a motion for summary judgment, also concludes an evidentiary hearing is not required “just to find out whether real issues surface in a case.”
California is in accord with the summary judgment rule but the court imposes significant cautionary instructions to assure that motions for summary disposition are not abused; Schlessinger v. Rosenfeld, Meyer & Susman, 40 Cal.App.4th 1096 (1995). The court notes the arbitrator should observe several safeguards, i.e., the nature of claims and defenses, provisions of the arbitration agreement, arbitration rules, availability and conduct of discovery . . .“[W]hile the arbitration lacks an explicit procedure for dispositive motions, courts must ensure that the party opposing such a motion is afforded a fair opportunity to present its position.”
Schlessinger is more detailed in its ruling than thd Third Circuit, and limits its discussion to summary disposition (adjudication of issues) as distinct from summary judgment, but both courts seek assurance that motions for summary disposition do not deprive a party of a fair hearing and the opportunity to be heard.
Motions for summary disposition are potentially available, but whether arbitrators elect to entertain this option in an arbitration absent the benefit of pleadings and motion practice in litigation is questionable.
See, www.ArbitrationAdr.com; Ch. III-B-12-c-3). Author: Judge Lawrence Waddington
Mon Feb 04, 2008
Arbitrators & Collateral Estoppel/Res Judicata
As lawyers continue to flood the courts with motions to confirm awards into judgments, the prospect of challenges to their application in subsequent arbitration and litigation increases. The most common emerging issues are collateral estoppel and res judicata. Both doctrines are applicable whether asserted by the parties in employment, consumer or commercial cases.
In Collins v. D.R. Horton, Inc., 505 F.3d 874 (9th Cir. 2007) two plaintiffs filed separate diversity actions against the same defendant alleging breach of their employment contract, fraud and failure to pay wages. The trial court, after denying a motion to consolidate the parties, denied defendant’s motion to compel arbitration as to one plaintiff but granted the motion as to the other plaintiff (a decision caused by a previous Ninth Circuit ruling subsequently reversed in the Supreme Court).
The plaintiff in the litigated case obtained a judgment in its favor against the defendant. In the arbitration subsequently conducted between the second plaintiff and the same defendant, the arbitrators rendered an award confirmed in a [partial] judgment for the defendant. On appeal from that judgment, the second plaintiff contended the prior judgment against the defendant entered in litigation was subject to collateral estoppel in the arbitration.
In Collins, the Ninth Circuit held . . . “where the prerequisites for collateral estoppel are satisfied, arbitrators must give preclusive effect to prior federal judgments”. . . Arbitrators are not free to ignore the preclusive effect of prior judgments under the doctrines of collateral estoppel and res judicata.” But the court explains there is a difference between offensive non mutual collateral estoppel and defensive non mutual collateral estoppel.
According to the court, offensive non mutual collateral estoppel occurs when the plaintiff seeks to estop a defendant from relitigating an issue the defendant had previously litigated and lost against another plaintiff. Defensive collateral estoppel is a motion by the defendant to estop a plaintiff who had litigated and lost against another defendant. Noting the unfairness of offensive non mutual collateral estoppel when multiple plaintiffs repeatedly file litigation against the same defendant alleging the same issue, the Ninth Circuit panel criticized its use except in unusual cases.
Not only must arbitrators consider application of collateral estoppel and res judicata, the Collins court also held that determination of whether these twin doctrines initially apply are an arbitrable issue-not judicial.
The Collins court cites Sixth and Seventh Circuit court cases as precedent for their decision, in part, but notes caveats in its holding. And, as noted by other courts, the absence of pleadings and records of the arbitration hearing impose a serious obstacle to applying collateral estoppel and res judicata to a previous judgment confirming an award. The Collins court also indirectly expresses a concern about the difference between a judgment entered in litigation and an award confirmed in a judgment as mandated by 9 U.S.C. 13 (c).
ArbitrationAdr.com; Text: Ch. IV-J
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